As part of the deals, Halladay would agree to a three-year extension through 2013, with a vesting option that could lengthen the deal by another year or two, one source said. The extension is expected to guarantee Halladay in the neighborhood of $60 million, plus the $15.75 million he would make in 2010, the final year of his current contract.
The specifics of the trades took some twists and turns on Monday. The latest structure would send three Phillies -- outfielder Michael Taylor, catching prospect Travis d'Arnaud and pitcher Kyle Drabek -- to Toronto, sources said.
Under that scenario, the Phillies would not have to include their top position-player prospect, Domonic Brown, and they would receive Seattle's top pitching prospect, Phillippe Aumont, who originally appeared ticketed for Toronto.
The Phillies would receive one other prospect -- believed to be 21-year-old outfielder Tyson Gillies -- from Seattle in the other trade for Lee, who is a year away from free agency.
Indications are that the Phillies also will receive a third prospect in the deal, but it wasn't clear Tuesday morning whether that player would come from Toronto or Seattle. However, ProspectInsider.com reported the third prospect is Mariners right-hander Juan Ramirez.
Initially, sources said, Toronto was to receive Aumont, d'Arnaud and another Phillies prospect in exchange for Halladay. The Phillies had balked at sending Brown.
Phillies doctors also have to sign off on Halladay's physical.
The AP also reported that the commissioner's office granted a 72-hour window on Sunday for Toronto and Philadelphia to complete their trade.
If all of the names being bandied about wind up in this deal, the Phillies would get back what Baseball America rates as the Mariners' top two pitching prospects, plus an outfield prospect (Gillies) they view as being similar to Taylor. So although the Phillies would be giving up two of their most highly regarded prospects in Drabek and Taylor, they would look at this deal as not significantly depleting their system for the long haul.
In effect, the Phillies would be trading one Cy Young (Lee) for another (Halladay). And while that may seem difficult to understand from afar, the Phillies clearly view it as a swap that enables them to keep one of those Cy Youngs well into the future -- a less likely scenario if they held on to Lee.
Although the Phillies have done next to no actual negotiating with Lee, they heard enough rumblings that Lee wanted a CC Sabathia-type contract that they believed it would take a five-year or six-year deal to keep the 31-year-old left-hander. And the Phillies have an organizational philosophy that precludes deals longer than three years for starting pitchers.
Halladay, on the other hand, was willing to talk about a shorter guarantee if it meant going to the Phillies, a team with a spring training site minutes away from his home in Florida.
The Phillies could have held on to Lee and taken a chance that they could sign one of the two pitchers as a free agent next winter. But they were apparently concerned there would be a massive bidding war over Halladay and Lee that would price them both out of their range.
The Mariners, meanwhile, were looking for a top-of-the-rotation starter to pair with Felix Hernandez. And Halladay, who has a no-trade clause, wasn't an option because he wouldn't approve a trade to Seattle. So the Mariners opted to deal for Lee after it became clear their other top target, John Lackey, was bound for Boston as a free agent.
Before turning to Seattle, multiple sources say, the Phillies first attempted to complete a two-team deal with Toronto alone for Halladay. However, the Phillies refused -- as they had last summer -- to include Drabek and Brown in that trade. So they began looking for another team that could help them meet the Blue Jays' price.
Originally, Seattle looked like a perfect match because of Aumont, the Mariners' No. 1 pick in 2007 and a native of Quebec. But Toronto kept pressing for Drabek and/or Happ. And, in the end, the Phillies apparently decided their best option was to keep Brown and get Aumont, who would immediately become their top pitching prospect if Drabek is a part of the deal.
The Phillies also had to clear payroll space to accommodate the addition of Halladay. They attempted to do that by trading away Blanton, but found they couldn't get enough back to enable them to make a Halladay deal.
SI.com first reported that the Phillies were close to acquiring Halladay.
Halladay, 32, is 148-76 lifetime with a 3.43 ERA. He won the 2003 Cy Young Award and finished in the top five in the Cy Young voting four other times.
Halladay went 17-10 with a 2.79 ERA in 32 starts for Toronto last season. He threw 239 innings and led the league with nine complete games.
The Phillies acquired Lee from the Indians on July 29 for four minor leaguers.
Lee quickly became Philadelphia's ace. He posted a 3.39 ERA in 12 starts for the Phillies and then went 4-0 with a 1.56 mark in five postseason outings, including 2-0 in the World Series.
Lee, the 2008 AL Cy Young Award winner with Cleveland, will make $8 million in 2010 and then be eligible for free agency.
Lee has told the Phillies he would like to stay but wants to be paid what the market will bear.
In other Blue Jays news, backup catcher Ramon Castro agreed to a one-year with Toronto, a source told ESPN The Magazine's Jorge Arangure Jr.
A source told ESPN.com that Castro's deal, which is pending a physical, is worth $1 million.
Castro split last season between the Mets and the White Sox.
He's the second free-agent catcher to agree to terms with Toronto this week. The Blue Jays also signed free agent John Buck. Both of their primary catchers last season, Rod Barajas and Gregg Zaun, have exited via free agency.
Jayson Stark covers baseball for ESPN.com. Information from The Associated Press contributed to this report.